Correlation Between Cars and CarsalesCom

Can any of the company-specific risk be diversified away by investing in both Cars and CarsalesCom at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cars and CarsalesCom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cars Inc and CarsalesCom Ltd ADR, you can compare the effects of market volatilities on Cars and CarsalesCom and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cars with a short position of CarsalesCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and CarsalesCom.

Diversification Opportunities for Cars and CarsalesCom

0.49

Correlation Coefficient

Cars  CarsalesCom

Very weak diversification

The 3 months correlation between Cars and CarsalesCom is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR and Cars is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cars Inc are associated (or correlated) with CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom ADR has no effect on the direction of Cars i.e., Cars and CarsalesCom go up and down completely randomly.

Pair Corralation between Cars and CarsalesCom

Given the investment horizon of 90 days Cars is expected to generate 1.21 times less return on investment than CarsalesCom. But when comparing it to its historical volatility, Cars Inc is 1.13 times less risky than CarsalesCom. It trades about 0.08 of its potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,851  in CarsalesCom Ltd ADR on September 13, 2024 and sell it today you would earn a total of  556.00  from holding CarsalesCom Ltd ADR or generate 11.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Cars Inc  vs.  CarsalesCom Ltd ADR

Cars Inc

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Cars may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CarsalesCom ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom Ltd ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, CarsalesCom showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cars and CarsalesCom

The main advantage of trading using opposite Cars and CarsalesCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, CarsalesCom can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CarsalesCom will offset losses from the drop in CarsalesCom's long position.

The idea behind Cars Inc and CarsalesCom Ltd ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.